It’s always a good idea to plan for your retirement, and it’s even more important when you’re a small business owner. If you don’t start planning soon enough, you could find yourself working well into your golden years or struggling to figure out what to do with the company you’ve built. Here are the three essential pieces of the retirement puzzle for business owners.
Contributing to Retirement Savings Plans
To live comfortably in retirement, you need to have enough money saved to cover many years’ worth of expenses. You can typically qualify for the Canadian Pension Plan and the Old Age Security Pension when you hit 65. While these are a good start, you’re likely going to need more than that. When you consider inflation, it’s easy to understand why you should save as much as you can.
Two of the best options are a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA). With an RRSP, you can contribute up to 18 percent of your annual income, with a cap of $26,010 as of 2017, tax free. You’re taxed on your contributions when you withdraw them, which can benefit you since you’re likely going to be in a lower income bracket when you retire. With a TFSA, you can contribute up to $5,500 as of 2017. It essentially works the opposite of an RRSP, as you use income that you’ve already paid taxes on to contribute, and you can withdraw your contributions tax free.
Paying Off Debts
Eliminating debt is a good goal at any stage of life, but if you have any lingering debts when retirement is approaching, you should work hard on paying them off. It’s much easier to relax and enjoy your retirement when you don’t have any debt payments in your monthly budget.
Make any high-interest debt, such as credit card debt, your first target, as this costs you the most. After you’ve paid that, you can move on to any outstanding loans, including mortgages, auto loans and business loans.
Finding a Successor
A change in ownership is a major adjustment, especially when it’s a small business that has only had one owner. When you set up a succession plan well in advance of your retirement, it makes the transition easier.
The two most important parts of the transition are finding your successor and getting that person ready to take over for you. Family members are a common choice as successors, but you may also consider other options, such as an employee who has been with you a long time and proven himself worthy. Make sure you start preparing him well in advance. You may also want to stay on in an advisory capacity for his first few months running the company.
Handing your business over to someone new isn’t your only option. You could also sell it, which can earn you extra money to put into your retirement nest egg.
No one ever said that they started planning for retirement too early. Make sure you give yourself plenty of time to handle all the preparations and set yourself and your business up for success after you retire.